The White House’s Executive Orders initially signed on February 1, 2025, to levy tariffs on imports from Canada1 and Mexico2 officially came into effect today (March 4, 2025) following a one-month delay on the stated grounds that not enough progress has been made on securing borders and stopping the flow of fentanyl stateside (which the data suggest3 is not the strongest argument).

That means that American importers of goods from Canada and Mexico will be charged a 25% tax (Canadian energy products will only face a 10% levy). As well, goods sourced from China will see another 10% tariff on top of the 10% rate imposed with the separate Executive Order4 from February 1.

Mexico, Canada and China combined to account for 42% of total US$3.3 trillion worth of goods imported to the US in 20245, so my math suggests that the introduction of these taxes nearly quadruples the average tariff rate at its highest rate since the early 1940s, standing now at nearly 12% versus 3% before, compared to about 1½% before the tariffs implemented in the President’s previous term.

Average tariff rate on all imports to the US
(percent)

Tariff viewpoint chart 1

Source: Guardian Capital using data from the Tax Foundation to 2024; author estimates for 2025

There are arguments to be made for using targeted tariffs to further national interests (such as supporting nascent industries), but all-encompassing barriers to trade are just bad policy as they raise costs and constrain demand, which translates into higher inflation and slower growth than would otherwise be the case — and previous high tariffs regimes show this to be the case.

Moreover, the US tariffs have triggered governments in Canada, Mexico and China to announce their own (albeit more targeted and comparatively limited) retaliatory tariffs on American-made goods — for example, Canada is placing 25% tariffs on a targeted C$30 billion worth of imports (roughly 6%) from the US right now with that slated to broaden out to cover C$150 billion worth of goods in three weeks; China has introduced tariffs ranging from 10% to 15% on an array of US agricultural goods — which only compounds the bad economics.

Furthermore, this is far from being the end of it. The US President has vowed to retaliate against other countries that levy tariffs on US exports — as well as the more than 170 countries that have value-added taxes6 (VAT) on consumption — and threatened to implement similar tariffs in breadth and magnitude of those enacted today on the European Union, while he also hit out at Japan.

This backdrop has created substantial uncertainty and has resulted in a measure of US trade policy uncertainty spike to its highest level on record (back to 1985).

Trade Policy Uncertainty Index, US
(index; pre-2015 average=100)

Tariff viewpoint chart 2

Shaded regions represent periods of US recession; source: Guardian Capital using data from PolicyUncertainy.com7 to February 2025

Perhaps even more notably, a broader gauge of general policy uncertainty worldwide, the Global Economic Policy Uncertainty Index8, jumped to its highest level on record (back to 1997) as the Administration took office — even exceeding those completely ‘bananas’ days of the early pandemic.

Global Economic Policy Uncertainty Index
(index; pre-2015 average=100)

Tariff viewpoint chart 3

Shaded regions represent periods of US recession; source: Guardian Capital using data from PolicyUncertainy.com to January 2025

Above all else, households, businesses and investors loathe uncertainty. It is hard to make spending and investment decisions when you are uncertain what tomorrow may bring — and that is especially the case right now because there is no guarantee on how long these tariffs will remain in place.

So, rather than triggering an immediate wave of reshoring and capital investment, the elevated policy uncertainty is, instead, most likely going to cause hesitation about maintaining current activities (and workers) — for example, the auto sector9 appears ready to idle production in the face of tariffs as supply chains get gummed up — and delay breaking ground on new projects.

Undoubtedly, the negative impacts of the tariffs will be more significant outside the US — not just in terms of direct impact on trade, but also on sentiment and restraint on spending and investment — but it will not be lost on investors and the US corporate sector that building the barriers between America and the rest of the world would be bad for business.

For example, data10 show that S&P 500 companies draw 41% of their revenues from outside America’s borders, with the all-important Tech sector generating 56% of sales from abroad — headwinds for earnings would stand to compound the negative investor sentiment that comes with heightened uncertainty and volatility, which would create a negative wealth effect for consumers that would flow through the broader economy.

S&P 500 company geographic revenue exposure, 2024
(billions of Canadian dollars)

Tariff viewpoint chart 4

Source: Guardian Capital using data from FactSet

The bottom line is that the wider the trade war spreads and the longer it persists, the greater the pain that will be felt — and the greater the reaction, with the potential for government support to mitigate some of the hurt but exacerbating the inflationary pressures and creating headaches for central bankers (who, I do not believe, will be driven to cut rates to the extent markets are currently pricing).

At the same time, there is a decent probability that the tariffs could prove very short-lived, which would support a relief rally for risk assets (the reports of the White House nearing a mineral deal with Ukraine despite that public spectacle last week suggest that there is a willingness to make deals rather than go full “scorched earth”) — though, the threat of tariffs is unlikely to come off the table any time soon.

This environment (and that the market and macro backdrop remain generally fine in the absence of this policy-induced stress), makes it pretty difficult to have much conviction to do much of anything at the moment, which, history shows, tends to be the best strategy in times of uncertainty.

Barring some sort of drastic shift in approach, uncertainty (and market volatility) is here to stay — but remember, the only people who will, for sure, get hurt on a roller coaster are those who try and get off in the middle of the ride.

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David Onyett-Jeffries
David Onyett-Jeffries is Vice President, Economics & Multi Asset Solutions, at Guardian Capital LP (GCLP) and provides macro-economic guidance to GCLP and its affiliates—Alta Capital Management LLC and GuardCap Asset Management Limited.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 Whitehouse.gov, Presidential Actions, Executive Order, Imposing duties to address the flow of illicit drugs across our northern border, February 1, 2025, https://www.whitehouse.gov/presidential-actions/2025/02/imposing-duties-to-address-the-flow-of-illicit-drugs-across-our-national-border/
2 Whitehouse.gov, Presidential Actions, Executive Order, Imposing duties to address the flow of illicit drugs across our southern border, February 1, 2025, https://www.whitehouse.gov/presidential-actions/2025/02/imposing-duties-to-address-the-situation-at-our-southern-border/
3 U.S. Customs and Border Protection, Newsroom, Stats and Summaries, Drug Seizure Statistics, March 4, 2025, https://www.cbp.gov/newsroom/stats/drug-seizure-statistics
4 Whitehouse.gov, Presidential Actions, Executive Order, Imposing Duties to Address the Synthetic Opioid Supply Chain in the People’s Republic of China, February 1, 2025, https://www.whitehouse.gov/presidential-actions/2025/02/imposing-duties-to-address-the-synthetic-opioid-supply-chain-in-the-peoples-republic-of-china/
5 Census.gov, Foreign trade balance, Country, March 4, 2025, https://www.census.gov/foreign-trade/balance/country.xlsx
6 Reuters, World, US, Why Trump has thrown VAT into the trade stand-off, February 21, 2025, https://www.reuters.com/world/us/why-trump-has-thrown-vat-into-trade-stand-off-2025-02-21/
7 Economic Policy Uncertainty, US Policy Categories, Categorical EPU Data, March 4, 2025, https://www.policyuncertainty.com/categorical_epu.html
8 The “Global Economic Policy Uncertainty Index” is a GDP-weighted average of national Economic Policy Uncertainty (EPU) indices for 16 countries that account for two-thirds of global output. Each national EPU index reflects the relative frequency of own-country newspaper articles that contain a trio of terms pertaining to the economy, uncertainty and policy-related matters
9 Autoweek.com, News, Tariffs Will Cut US Auto Production and Lead to Layoffs, AEG Says, February 26, 2025, https://www.autoweek.com/news/a63932725/tariffs-will-cut-us-auto-production/
10 Factset, Insight, S&P 500 Companies with More International Exposure Are Reporting Earnings Growth Above 20%, February 18, 2025, https://insight.factset.com/sp-500-companies-with-more-international-exposure-are-reporting-earnings-growth-above-20

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Published: March 5, 2025